targeting export support to smes: owners' international experience as a segmentation basis

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Targeting Export Support to SMEs: Owners’ International Experience Eileen Fischer as a Segmentation Basis A. Rebecca Reuber Small Business Economics 20: 69–82, 2003. 2003 Kluwer Academic Publishers. Printed in the Netherlands. ABSTRACT. This paper addresses the issue of how export support programs can be effectively targeted to SMEs. This paper argues that the normally low awareness and usage of export support programs among SME owners can be countered by segmentation based on their level of export experience. The paper develops a theoretical rationale for this segmentation basis and develops hypotheses related to it. The hypotheses are tested, and largely supported, using data from Canadian SME exporters and pre-exporters. Results indicate that segmentation based on owners’ level of export experience can be an effective supplement to current segmentation bases. Implications of the results for providers of export support services are discussed in the concluding section. 1. Introduction The internationalization of small and medium- sized firms (SMEs) is the objective of many public policy initiatives world-wide (UNCTAD, 1994). There are multiple, interrelated reasons that these initiatives have been developed: most firms are small firms; most people work for small firms; small firms play a critical role in industry inno- vation; growth-oriented small firms benefit their communities through economic development; and internationalization can provide firm-specific growth opportunities that exceed industry averages (Acs, 1999; Aldrich, 1999; Japan Small Business Research Institute, 1998; OECD, 1997). The basic logic behind programs that support small firm internationalization, then, is that internationaliza- tion is good for small firms, and small firms are good for economies. Common forms of support extended to SMEs include the provision of information about foreign markets, assistance in contacting brokers or agents, financial assistance such as trade credits or loans, and special incentives such as contribu- tions toward the initial costs of developing products for non-domestic markets. Many programs are intended to support either the initiation of exporting by firms that previously only operated in their domestic markets, or the growth of export sales by firms that have done some limited exporting. A typical program supporting the initiation of exporting by SMEs features training: in Canada, the Forum for International Trade Training would fit in this category. A typical program supporting the growth of exporting offers financial assistance to small exporters: Canada’s Export Development Corporation offers a variety of forms of financial assistance to small exporters, such as operating line financing and accounts receivable insurance. Given these programs specifically targeted to SMEs, then, it is both frustrating and worrisome that small firms are less adept than large firms in accessing government assistance (cf. OECD, 1997; UNCTAD, 1994). While sizeable resources are being expended, there is often low awareness of program offerings among SME owners, a low rate of usage among those who are aware of the types of assistance available, and little impact on the trading behaviors of firms that do use the programs (Orser et al., 1999; Seringhaus and Final version accepted on October 2, 2001 Eileen Fischer Schulich School of Business York University Toronto, Ontario Canada M3J 1P3 E-mail: [email protected] A. Rebecca Reuber Joseph L. Rotman School of Management University of Toronto Toronto, Ontario Canada M5S 3E6

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Page 1: Targeting Export Support to SMEs: Owners' International Experience as a Segmentation Basis

Targeting Export Support to SMEs:Owners’ International Experience

Eileen Fischeras a Segmentation Basis A. Rebecca Reuber

Small Business Economics

20: 69–82, 2003. 2003 Kluwer Academic Publishers. Printed in the Netherlands.

ABSTRACT. This paper addresses the issue of how exportsupport programs can be effectively targeted to SMEs. Thispaper argues that the normally low awareness and usage ofexport support programs among SME owners can becountered by segmentation based on their level of exportexperience. The paper develops a theoretical rationale for thissegmentation basis and develops hypotheses related to it. Thehypotheses are tested, and largely supported, using data fromCanadian SME exporters and pre-exporters. Results indicatethat segmentation based on owners’ level of export experiencecan be an effective supplement to current segmentation bases.Implications of the results for providers of export supportservices are discussed in the concluding section.

1. Introduction

The internationalization of small and medium-sized firms (SMEs) is the objective of many publicpolicy initiatives world-wide (UNCTAD, 1994).There are multiple, interrelated reasons that theseinitiatives have been developed: most firms aresmall firms; most people work for small firms;small firms play a critical role in industry inno-vation; growth-oriented small firms benefit theircommunities through economic development; andinternationalization can provide firm-specificgrowth opportunities that exceed industry averages

(Acs, 1999; Aldrich, 1999; Japan Small BusinessResearch Institute, 1998; OECD, 1997). The basiclogic behind programs that support small firminternationalization, then, is that internationaliza-tion is good for small firms, and small firms aregood for economies.

Common forms of support extended to SMEsinclude the provision of information about foreignmarkets, assistance in contacting brokers oragents, financial assistance such as trade creditsor loans, and special incentives such as contribu-tions toward the initial costs of developingproducts for non-domestic markets. Manyprograms are intended to support either theinitiation of exporting by firms that previouslyonly operated in their domestic markets, or thegrowth of export sales by firms that have donesome limited exporting. A typical programsupporting the initiation of exporting by SMEsfeatures training: in Canada, the Forum forInternational Trade Training would fit in thiscategory. A typical program supporting the growthof exporting offers financial assistance tosmall exporters: Canada’s Export DevelopmentCorporation offers a variety of forms of financialassistance to small exporters, such as operatingline financing and accounts receivable insurance.

Given these programs specifically targeted toSMEs, then, it is both frustrating and worrisomethat small firms are less adept than large firms inaccessing government assistance (cf. OECD,1997; UNCTAD, 1994). While sizeable resourcesare being expended, there is often low awarenessof program offerings among SME owners, a lowrate of usage among those who are aware of thetypes of assistance available, and little impact onthe trading behaviors of firms that do use theprograms (Orser et al., 1999; Seringhaus and

Final version accepted on October 2, 2001

Eileen Fischer Schulich School of BusinessYork UniversityToronto, OntarioCanada M3J 1P3E-mail: [email protected]

A. Rebecca ReuberJoseph L. Rotman School of ManagementUniversity of TorontoToronto, OntarioCanada M5S 3E6

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Rosson, 1990). Commentators have explained thelack of knowledge and interest, and ineffectiveusage, on the part of small firm owners by sug-gesting that programs lack a proper basis ofsegmentation and/or are poorly targeted (Gray,1997; Orser et al., 1999; Seringhaus and Rosson,1990).

It is a common, if implicit, practice to segmentthe market for export support based on firm-levelbehaviors that are considered to reflect thecompany’s “stage” of exporting (Crick, 1995;Gray, 1997; Seringhaus, 1987). A minimum ofthree segments, tacitly assumed to correspond tothree stages of export development, are commonlyidentified and treated as distinct target markets bypublic providers of export support services. Thefirst segment consists of firms considered“pre-exporters:” those firms with limited experi-ence in their domestic markets and no exportactivity. The second segment consists of firms thathave become established in their domestic marketsand are starting to develop regular foreign cus-tomers. So, for instance, the Canadian governmenthas multiple programs targeted at new exporters(e.g., New Exporters to Border States, NewExporters Overseas, New Exporters Training andCounseling Program) that are premised on theassumption that firms at this initial stage ofexporting will have sufficiently common needs towarrant a common form of export support (TeamCanada, 1997). The third segment consists offirms that are regular or active exporters. Theseare normally considered to be larger, more estab-lished firms and support programs targeted at suchfirms usually require that the firms be at or aboveparticular sales levels (Orser et al., 1999).

This paper will explore the nature of andrationale behind these existing segmentation basesfor export support programs, and will suggest asupplementary approach to segmentation that isbased on both theory and an empirical study ofCanadian firms. It will suggest that a segmenta-tion basis that focuses on the experience of theSME owner, in addition to those that focus on theexport behaviors of the firm, will be a sound, andtheoretically supportable, supplement to existingpractice. In particular, the paper will attempt toanswer the following question: Can SMEs besegmented based on the international experienceof their owners such that the resulting groups

represent targets with distinct characteristics andneeds related to export support services?

The paper is developed as follows. First, theo-retical bases for current segmentation strategiesare reviewed. Next, a theoretical rationale forsegmenting based on experiential characteristicsof SME owners is presented, and hypothesesconcerning differences relevant to needs for exportsupport are developed. The subsequent sectiondescribes the methodology used to developclusters representing different experience seg-ments, and tests the hypotheses concerning dif-ferences between these segments. The final sectiondiscusses the limitations, conclusions and impli-cations of the paper.

2. Theoretical bases for segmentation of themarket for export support

Stage models as the basis for current practice

The rationale for segmentation based on stage ofinternationalization derives from traditional stagemodels of internationalization (e.g. Bilkey andTesar, 1977; Cavusgil, 1980, Czinkota, 1982, Reid,1981; Weidersheim-Paul et al., 1978). Thesemodels generally posit that firms pass through anumber of stages prior to internationalization(such as pre-involvement, passive exploration,reactive involvement) and one or more develop-mental stages during internationalization (e.g.limited involvement, active involvement, com-mitted involvement). Stage models suggest thatSMEs with a limited domestic track record are lesslikely than more established firms to be able toenter foreign markets due to their limited knowl-edge and resource base, while larger and olderfirms with more experience and resources will bebetter able to compete in foreign markets due tothe firm-level learning and commitment thatdevelops as firms gain experience.

Stage-based models of internationalization havebeen reviewed and critiqued a number of times inrecent years (e.g. Anderson, 1993; Leonidou andKatsikeas, 1996; Oviatt and McDougall, 1997;Sullivan and Bauerschmidt, 1990). There isconcern that the models lack theoretical rigor(Anderson, 1993). Moreover, there is considerableevidence that they are descriptive of the behaviorof only a subset of SMEs. Recent studies have

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shown that assumptions regarding domestic start-up are no longer valid (e.g. Cavusgil, 1994;McDougall et al., 1994; Oviatt and McDougall,1994), and that there are multiple paths towardinternationalization even for firms that aredomestic start-ups (Bonaccorsi, 1992; Johansonand Vahlne, 1990; Kutscher et al., 1997; Sullivanand Bauerschmidt, 1990).

These concerns about stage models do not, ofcourse, completely invalidate criteria based onsuch models for purposes of segmentation andtargeting in the market for export support services(see, for instance, Crick, 1995). They do, however,indicate that attention should be paid to the limitsof applicability of stage based criteria. Moreover,they suggest that supplements to existing seg-mentation bases need to be considered.

Toward an alternative basis for segmentingexport support service markets

To develop a supplementary basis for segmentingthe market for export support, it is useful to beginby considering why stage models may be less thanuniversally applicable. It can be argued that stagemodels are now less robust than when they werefirst articulated, since they were developed in thelate 1970s and early 1980s. In the last decade, thebusiness environment has become ever moreglobalized facilitating the internationalization ofall young and small firms (Oviatt and McDougall,1999). For example, since 1990, internationaltrade barriers have decreased, enabling techno-logies, such as fax and the Internet, have becomecommonplace, and the sheer volume of interna-tional trade has grown substantially (OECD,1997). However, while it is true that the numberof SMEs operating in foreign markets isincreasing, it is still the case that only a small pro-portion of SMEs sell a significant proportion oftheir output outside their own domestic markets(cf. Bell, 1997; Leonidou, 1995; OECD, 1997).The variability among SMEs in their attempts tointernationalize suggests that there are differencesbetween these firms in the ways that their ownersunderstand and pursue global opportunities.

This leads to a second observation regardingthe limitations of the existing segmenting andtargeting practices for export support programs.Most such programs segment based on the

activities or characteristics of the firm rather thanon characteristics of the owner-manager of thefirm (Gray, 1997). Yet, particularly in SMEs, thefounder or current owner and that individual’s topmanagement team will have a profound impact onthe strategies adopted and enacted (Chandlerand Hanks, 1994; Gimeno et al., 1997). In fact,both stage models of internationalization (e.g.Cavusgil, 1980; Reid, 1981; Wiedersheim-Paulet al., 1978) and numerous studies of factorspredictive of the degree of firm internationaliza-tion (e.g. Bloodgood et al., 1996; Calof andBeamish, 1994; Cavusgil and Nevin, 1981; Crickand Jones, 2000; Eriksson et al., 1997; Erramilli,1991; Johanson and Vahlne, 1990; Knight, 2000;Kutschker and Bäurle, 1997; Liang, 1995;McDougall et al., 1994; McDougall and Oviatt,1996; Reuber and Fischer, 1997) indicate thatcharacteristics of SME owners are of criticalimportance to the internationalization of theirfirms and that they need to be taken into accountwhen designing or delivering export supportservices. As Gray (1997) suggests regarding largeand mature firms, companies at the same stage ofinternationalization may require different types ofassistance depending on the characteristics of theindividuals in charge of export development orinternationalization more generally.

In the case of SMEs, it can be argued that theinternational experience of the owners will becritical in determining both what kinds of supportmay be required, and how service providers shoulddesign their communications strategies. Thisargument will be developed below.

3. International experience

Many studies have examined the impact ofmanagers’ international experience on their firms’internationalization behaviors (e.g. Brooks andRosson, 1982; Oviatt and McDougall, 1994;Reuber and Fischer, 1997). A number of measuresof experience have been posited to predict propen-sity for, or success in, exporting, such as havinglived abroad or worked abroad (cf. Meisenbock,1988; Reid, 1981). Arguably, however, the mostconsistently successful predictor has been themanagers’ level of past experience in working ondeveloping international markets for a firm (cf.Reuber and Fischer, 1997). This is consistent

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with findings that human capital traits of entre-preneurs, especially their experience, influencetheir decision making about their firms (Gimenoet al., 1997).

There are two interrelated reasons why theinternational experience of firms’ key decisionmakers is expected to be related to the way theymanage the export (or other internationalization)activities of their firms and to the export supportservices they are likely to need. First, individualslearn through experience, developing bothexpertise and contacts, which reduces the uncer-tainty associated with decision making. Thus anSME owner with prior international experience islikely to have a greater level of knowledge andskills regarding how to manage the internationalbusiness of the firm (Bloodgood et al., 1996;McDougall et al., 1994). This should mean thatmore experienced owners direct the internationalactivities of their current firm in a more proactiveand strategic manner than would owners withlimited experience. It should also mean they scanmore proactively for information required toexport effectively, since, as the literature onexpertise suggests, they are more likely to “knowwhat they do not know” (Reuber and Fischer,1999).

A second reason that experience matters is thatit influences the formation of the firm’s “dominantlogic” (Bettis and Prahalad, 1995; Prahalad andBettis, 1986), an “information funnel” throughwhich managers’ attention is filtered. Differentexperiential contexts are likely to result in theformation of different types of dominant logics,which will result in different decisions and actionson the part of decision makers (Boeker, 1997;Tyler and Steensma, 1998). Accordingly, whenexport activities are a substantial part of theexperiential context of a firm’s decision makers,it is expected that they will pay greater attentionto them when managing the firm. This shouldmean that SME owners with greater internationalexperience pay more attention to internationaliza-tion as a growth strategy, and also to the barriersthat will impede the execution of a strategy forgrowth through internationalization.

Thus, through learning and attentional pro-cesses, it is expected that the nature and degreeof international experience held by SME ownerswill affect the way they manage the development

of exporting in their firms, and will mean thatthere are differences in their need for exportsupport services. In particular, the foregoing dis-cussion suggests the following hypotheses:

Compared with SME owners who have greaterlevels of international experience, SME ownerswith lower levels of international experiencewill:

H1: Be less likely to view the development ofexport markets as a competitive route togrowth;

H2: Pay less attention to valuable sources ofbusiness information related to exporting;

H3: Be less aware of key network-relatedbarriers that may prevent the developmentof greater export intensity.

Each of the hypothesized differences should berelevant to the kind of export support servicesthat are required. Decision makers who are lessinclined to view exporting as a competitive routeto growth require more basic forms of training inhow to manage export development in a proac-tive and strategic manner. Decision makers whopay less attention to key sources of businessinformation require more coaching on whatinformation is important and how to obtain it.Finally, decision makers who are less apt torecognize critical network-related barriers havegreater need of sensitization to likely obstacles aswell as means of overcoming them.

In addition to hypothesizing that less interna-tionally experienced SME owners have differentneeds related to export support services, it is alsoreasonable to expect that they will have to betargeted by different kinds of communicationsstrategies. Less internationally-experienced SMEowners, who are less aware of the specific kindsof difficulties associated with exporting, and whoscan less actively for information related toexporting, are less likely to seek out or happenupon information regarding available exportsupport services. This assumes, of course, thatcurrent communication strategies among exportsupport service providers are not effectivelytargeting less experienced managers since theyare instead focused on differentiating among firmsat various stages of internationalization. Thissuggests the following hypothesis:

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H4: Firms led by less internationally experi-enced SME owners will be aware of feweravailable export support services than firmsled by more experienced SME owners.

A final difference worth considering relates tothe usage of export support programs. Whether ornot SME owners choose to use programs oncethey become aware of them will depend onwhether they believe them to be suitable for theirfirms and of value. These costs and benefits willultimately be situationally dependent, and somefirms managed by internationally experienceddecision makers will perceive the costs (financialor otherwise) of using the programs to be offsetby the benefits. It is expected, however, thatamong less experienced SME owners, thetendency to try out programs will be higher fortwo reasons. First, within the segment of lessexperienced owners, those who do become awareof available programs are likely to be those whoare most proactively pursuing export developmentand most receptive to assistance. The rationalehere is that those who are inexperienced butrelatively proactive will be seeking out informa-tion. Further, those who are inexperienced buteager to pursue exporting may well realize theyhave a higher need of assistance to offset theirrelative lack of experience. Second, comparedwith experienced owners, less experienced oneswill be less able to estimate both costs and benefitsand so may be more apt to “try out” the serviceto gain a better sense of whether it is of value (cf.Eriksson et al., 1997). These arguments lead to thefollowing hypothesis:

H5: Among the SMEs whose owners are awareof export support services, firms led byless internationally experienced ownerswill be more likely to try to use exportsupport services than firms led by moreexperienced owners.

A description of the empirical study for thesehypotheses is now provided.

4. Methodology

Through an initiative of the Small and MediumEnterprise Division of Canada’s Department ofForeign Affairs and International Trade, a list ofsmall and medium-sized firms that were either

exporting or had the potential to export wasassembled. The list was developed from varioussources, including business owners’ associations,web-site directories and trade associations.Eligible businesses employed fewer than 500employees and were owner-managed.

Sample

An initial list of 1,452 potential contacts wasconstructed. Of these, 1,085 were actually con-tacted; the remainder did not answer after fiveattempts to contact them by telephone over a twoweek period and did not reply to repeated faxmessages. Of the actual 1,085 contacts, 132 didnot cooperate or could not due to languagebarriers. Of the remainder, 496 met the studycriteria. To meet the selection criteria, firms hadto have fewer than 500 employees, had to have awoman who was at least a part owner, and had tobe either an exporter or to express an interest inexporting at some point. Among those SMEs thatmet the selection criteria, 316 were activeexporters, defined for purposes of the study asfirms that currently exported and had achievedrepeated sales to foreign customers. The remaining180 SMEs were “pre-exporters,” defined for thepurposes of the study as firms that indicated aninterest in exporting, and may or may not have hadsome initial exports, but who had no repeatcustomers.

A fax-back questionnaire was sent to each ofthe 496 eligible businesses. After several roundsof follow-up, 188 questionnaires were completedand returned by the owner manager: 121 wereactive exporters and 67 pre-exporters. This repre-sents a 38 percent response rate of those contactedand a 26 percent response rate among eligiblefirms on the database. The mean age of the firmsin the sample was 9.5 years (s.d. 10.7, range 0 to89). The mean number of employees was 19 (s.d.56, range 0 to 380). The mean rate of foreign salesas a percent of total sales was 23.1 (s.d. 33.1,range of 0 to 100). Twenty six percent of the firmsin the sample were service providers.

Measures

International experience of SME owners. Giventhe focus of this study on the need for export

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assistance, it was decided that it would be mostrelevant to measure the amount and perceivedrelevance of export-related work experience. Theamount of export-related work experience of theSME owners was assessed by asking: “How manyyears of business experience do you have in exportrelated work?” The mean response was 6.1 years(s.d. 7.1; range 0 to 35). To attempt to determinethe perceived relevance of this experience, respon-dents were asked “How important was yourprevious familiarity with export markets to yourdecision to export?” The mean, on a five pointLikert scale (1 = “not all important,” 5 =“extremely important”) was 2.5 (s.d. 1.5, range 1to 5). As will be described below, these twovariables were used to cluster respondents intosegments. The former are referred to asEXPLENGTH and the latter as EXPRELEV.

Perceived role of exporting. To measure thetendency of respondents to perceive the develop-ment of export markets as a competitive route togrowth, respondents were asked about the impor-tance of the following motivations for planningto export or increasing exporting: “to increasesales,” and “to respond to competition.” Responseswere based on a five point Likert scale (1 = “notall important,” 5 = “extremely important”). Themean for “to increase sales” was 4.2 (s.d. 1.1 range1 to 5). The mean for “to respond to competition”was 2.0 (s.d. 1.4, range 1 to 5). The variablesreflected by these measures are referred to asIMPSALE and IMPCOMP respectively.

Attention paid to key information sources. Toassess the extent to which respondents paidattention to key sources of information, they wereasked to draw on their experience and rate theimportance of the certain sources of information.Again, responses were based on a five point Likertscale (1 = “not all important,” 5 = “extremelyimportant”). There are many different sources ofinformation that could have been assessed here:three in particular were chosen based on priorresearch that suggests that information acquiredfrom business-related sources (e.g. Denis andDepelteau, 1985) and from direct experience inforeign markets (e.g. Erramilli and Rao, 1990;Johanson and Vahlne, 1977, 1990) is critical. Theinformation sources rated were “business associ-

ation and associates” (mean 3.6, s.d. 1.4 range 1to 5), “industry publications” (mean 2.9, s.d. 1.4,range 1 to 5), and “personal visits to foreignmarkets” (mean 3.7, s.d.1.4, range 1 to 5). Thesevariables are referred to as BUSASINFO,INDPBINFO, and VISITINFO.

Network-related barriers recognized. Indicators ofthe extent to which respondents recognized animportant potential barrier to internationalization– lack of networks – were measured using twodifferent items. Study participants were asked torate, on a five point Likert scale (1 = “not at allsignificant,” 5 = “extremely significant”) thesignificance of two impediments to exporting.Given the known importance of networks andchannels of distribution for exporting (cf. Covielloand Munro, 1995, 1997), the first impediment was“finding local partners” (mean 3.0, s.d. 1.6, range1 to 5) and the second impediment was “lack ofnetworks” (mean 2.8, s.d. 1.5, range 1–5). Thesevariables are referred to as PARTNER andNETWORK.

Awareness of export support programs. For eachof several national export support programs,respondents were asked to indicate whether or notthey were aware of the program. For purposes ofanalysis, the support programs were divided intotwo groups. The first group consists of programsthat are “customizable” in the sense that firms atdifferent stages or degrees of internationalizationcould take advantage of them. These included: TheBusiness Development Bank of Canada, theExport Development Corporation of Canada,Canada’s International Trade Centers, Canada’Trade Commissioner Services and Canada’s TradeMissions. The second group consists of programsspecifically targeted at new exporters. Theseincluded: the New Exporters to Border Statesprogram, the New Exporters Overseas program,the Program for Export Market Development, andthe Forum for International Trade Training. Forthe first group and for the second, a score wascreated for each respondent by summing thenumber of programs in the group of which theindividual was aware. The score for the first groupof programs is referred to as the variable “generalprogram awareness” (AWRG). The mean was 3.1out of 5 programs (s.d. is 1.7; range is 0 to 5). The

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score for the second group of programs is referredto as the variable “new exporter program aware-ness” (AWRN). The mean was 1.4 out of 4programs (s.d. is 1.3, range is 0 to 4).

Use of export support programs. For the samenational export support programs, respondentswere asked to indicate whether or not they hadused the service. The support programs were againdivided into groups corresponding to general“customizable” programs and programs for newexporters. As was the case for the awarenessvariables, the usage variables were calculated bysumming, within each group, the number ofprograms the respondent had used. The score forthe first group of programs is referred to as thevariable “general program usage” (USEG). The

mean among those who had used any of theprograms was 1.8 out of 5 programs (s.d. is 3.2;range is 0 to 5). The score for the second groupis referred to as the variable “new exporterprogram usage” (USEN). The mean among thosewho had used any of the programs was 1.4 out of4 programs (s.d. is 1.6, range is 0 to 4). Table Ipresents a summary of this discussion of measures.

5. Analysis and results

Creating segments via cluster analysis

Cluster analysis was used to develop segments ofSME owners based on the experience variables,EXPLENGTH and EXPRELEV. Cluster analysisis an exploratory technique, but it is useful for

Targeting Export Support 75

TABLE ISummary of constructs and measures used

Construct Measures Mean S.D. Range

International experience of EXPLENGTH: # yrs business 6.1 7.1 0 to 35owner managers experience in export related work

EXPRELEV: relevance of prior 2.5 1.5 1 to 5 work to decision to export

Perceived role of exporting IMPSALE: extent to which reason 4.2 1.1 1 to 5 for exporting was growing sales

IMPCOMP: extent to which reason 2.0 1.4 1 to 5 for exporting was competition

Attention to key information BUSASINFO: importance of info from 3.6 1.4 1 to 5sources business association and associates

INDPBINFO: importance of 2.9 1.39 1 to 5 info from industry publications

VISITINFO: importance of 3.7 1.4 1 to 5 info from visits to foreign markets

Network-related barriers PARTNER: significance of 3.0 1.6 1 to 5 recognized barrier to finding local partner

NETWORK: significance of 2.8 1.5 1 to 5 barrier of lack of network

Awareness of export AWRG: awareness of general 3.1 1.7 0 to 5support programs programs

AWRN: awareness of programs 1.4 1.3 0 to 4 targeted at new exporters.

Use of export support USEG: use of general programs 1.8 3.2 0 to 5programs among those aware of them

USEN: use of programs targeted 1.4 1.6 0 to 4 at new exporters among those aware

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imposing a structure on research data and fordeveloping managerially relevant segments solong as there is a sound theoretical basis for theclusters. As has been argued above, there aretheoretical grounds for clustering based on theexport-related experience of the SME owner-manager. Without such grounds, there is a dangerthat clusters identified will arise from the clus-tering method chosen rather than some underlyingstructure such as differences between managers(Aldenderfer and Blashfield, 1984; Hair et al.,1995).

A hierarchical cluster analysis procedure waschosen because of its demonstrated robustness,ability to maximize within-cluster homogeneityand between cluster heterogeneity, and its abilityto recover known cluster structure (Arabie andHubert, 1994). This research could not assume any“ideal” initial cluster centroid, ruling out thepossibility of using a non-hierarchical partitioningmethod (Hair et al., 1995). The distance measureused, squared Euclidean distance, is the onerecommended for the hierarchical cluster proce-dure, since it leads to the formation of clusterswith the least error sum of squares.

Since unstandardized data (e.g. variables withdiffering scales) can cause weighting problems incluster analysis, it was deemed preferable to usethe standardized data here by taking z-scores. Thisdecision was taken even though standardizingvariables may reduce between-group differencesand lead to conservative tests of hypotheses.Further, since clustering algorithms are sensitiveto outliers, one data point was dropped beforeclustering commenced.

The number of clusters can be based onconceptual considerations, visual methods, and/orby examination of increases in the agglomerationcoefficient (Hair et al., 1995). In this study, allthree methods were used. The main conceptualconsideration was the number of segments thatmanagers of export support programs could rea-sonably be expected to serve. Too many segments,requiring too many customized services or com-munications strategies, are unworkable. However,within-segment homogeneity is a pre-requisite foreffective segmentation (Kotler and Turner, 1995).Current segmentation bases usually lead tobetween three and five distinct groups (Gray,1997; Crick, 1995; Seringhaus and Rosson, 1990).

Based on these considerations, the number ofclusters sought was determined to range from twoto five.

To help assess the specific number, changes inthe agglomeration coefficients at the later clustercombination stages were examined. Relativelylarge changes indicated when the major clustershad been formed (signifying significant increasesin homogeneity). Based on this consideration, itappeared that there were two clusters of owner-managers, one less experienced and the other moreexperienced. This was based on the relatively largechanges between the penultimate and the finalclustering stages, compared with those betweenthe third to last and the penultimate stages (a 51percent change between the penultimate and finalagglomeration coefficients versus a 24 percentchange between the third to last and penultimateagglomeration stages). Visual analysis of thedendogram reconfirmed that two segmentsappeared to exist.

To test the internal validity of the clustersolution, split samples were clustered. Resultswere compared with the solution when the wholesample was clustered, and the absence of majordifferences suggested that the procedure hadproduced a relatively generalizable solution. Aneven more important consideration, however, wasthe external validity of clusters, which is indicatedby comparing clusters using a variable not actuallyused in the cluster solution, but which is knownfrom prior research to vary according to clustervariable differences (Aldenderfer and Blashfield,1984). In this study, the ratio of foreign sales tototal sales (FSTS) of the firms managed by lessversus more experienced managers is such acriterion variable, since prior research, as dis-cussed above, has often shown that firms managedby owners with greater international experienceachieve higher levels of FSTS. While experiencedindividuals may buy or found firms that have notyet begun to export, and while inexperiencedmanagers may buy firms that have high FSTS orfound firms that export extensively from incep-tion, we would expect firms managed by interna-tionally experienced owners to have a higher FSTSthan those managed by internationally inexperi-enced owners. A one-way ANOVA was thereforeused to compare members of the two clusters orsegments with respect to the FSTS achieved by

76 Eileen Fischer and A. Rebecca Reuber

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their firms. The F-statistic for this test wassignificant (0.01), and a comparison of meansindicated that firms led by more internationallyexperienced owners had a mean FSTS of 35%versus 13% for those led by less internationallyexperienced owners.

The foregoing analysis, then, lead to the iden-tification of two clusters with differing experienceprofiles. For the “lower experience” segment, themean values for EXPLENGTH and EXPRELEVwere, respectively, 4.8 (s.d. 4.6) and 1.5 (s.d. 0.8).For the “higher experience” segment, the meansfor these variables were 8.4 (s.d. 4.8) and 4.3(s.d. 0.8) respectively. Thirty six percent of thesample was in the higher experience segment,while the remaining sixty four percent was in thelow experience segment. These differences, andthe differences between the “lower” and “higher”experience clusters on other variables measured,are summarized in Table II.

Hypothesis testing

Hypothesis 1 states that, compared with SMEowners who have greater levels of internationalexperience, SME owners with lower levels ofinternational experience will be less likely to viewthe development of export markets as a competi-tive route to growth. To test this hypothesis, oneway ANOVAs were done for the variablesIMPSALE and IMPCOMP using the experience

based segments as grouping variables. The resultsare shown in Table III.

These ANOVAs indicate that Hypothesis 1should not be rejected, meaning that less experi-enced SME owners are likely to view exportingless as a proactive route to survival and growththan their more experienced counterparts.

Hypothesis 2 states that, compared with SMEowners who have greater levels of internationalexperience, SME owners with lower levels ofinternational experience will pay less attention tovaluable sources of business information relatedto exporting. To test this hypothesis, one wayANOVAs were done with the variablesBUSASINFO, INDPBINFO, and VISITINFOusing the experience based segments as groupingvariables. The results are shown in Table IV.

These results are moderately supportive ofHypothesis 2. The F test for the ANOVA for thethird variable, VISITINFO (which represents theimportance placed on personal visits to foreignmarkets as a means of gaining information) is onlymarginally significant, although the nature of thedifference is as predicted. The results for the othertwo variables in this group are as expected.Overall, this lends some support to the idea thatless experienced owners place less importance on

Targeting Export Support 77

TABLE IIIANOVAs for variables reflecting exporting as a

competitive route to growth

F Sig.

IMPSALE Group 1 mean 4.05 05.125 0.026Group 2 mean 4.57

IMPCOMP Group 1 mean 1.67 10.249 0.002Group 2 mean 2.57

TABLE IVANOVAs for variables reflecting attention paid to

important information sources

F Sig.

BUSASINFO Group 1 mean 3.18 5.672 0.019 Group 2 mean 3.86

INDPBINFO Group 1 mean 2.50 5.465 0.022 Group 2 mean 3.20

VISITINFO Group 1 mean 3.52 2.998 0.087 Group 2 mean 4.03

TABLE IIComparison of clusters on key variables

Measures Lower experience Higher experience

Mean S.D. Mean S.D.

EXPLENGTH: 4.8 4.6 8.4 4.8EXPRELEV: 1.5 0.8 4.3 0.8IMPSALE: 4.0 3.0 4.6 3.2IMPCOMP: 1.7 1.5 2.7 2.0BUSASINFO: 3.2 2.9 3.9 3.5INDPBINFO 2.5 2.1 3.2 2.7VISITINFO. 3.5 2.4 4.0 2.7PARTNER 2.6 2.2 3.3 2.6NETWORK 2.3 2.0 2.9 1.8AWRG: 3.1 3.0 3.9 2.9AWRN: 1.2 1.1 1.8 1.4USEG: 2.9 2.0 1.2 1.1USEN 1.6 1.7 1.0 1.0

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sources of information that are likely to be ofconsiderable value.

Hypothesis 3 states that, compared with SMEowners who have greater levels of internationalexperience, SME owners with lower levels ofinternational experience will be less aware of keybarriers that may prevent the development ofgreater export intensity. To test this hypothesis,ANOVAs were done with the variables PARTNERand NETWORK, using the experience segmentsas grouping variables. Table V shows the results.

These results lend support to Hypothesis 3.Less experienced SME owners do appear to beless sensitive to network related barriers that caninhibit the establishment or growth of exportingchannels.

Hypothesis 4 states that, compared with SMEowners who have greater levels of internationalexperience, SME owners with lower levels ofinternational experience will be aware of feweravailable export support services. This hypothesiswas tested using ANOVAS for the variablesAWRG and AWRN, using the experience basedsegments for grouping. The results are shown inTable VI.

Again, results support the hypothesis. There aresignificant differences of the kind expectedbetween more and less experienced owners interms of their awareness of both general programsand programs designed for firms that are at the

outset of developing their exporting activity. It isworth noting that, for both groups, there is a ratherlow mean level of awareness of programs fornew exporters. This means that usage rates willperforce be very low, because firms cannot useexport support programs of which they areunaware.

Hypothesis 5 states that, among SME ownersaware of export support services, firms led by lessinternationally experienced owners will be morelikely to try to use export support services than arefirms led by more experienced owners. Table VIIshows the ANOVAs used to test this hypothesis.

These results are only partially supportive ofHypothesis 5. While the nature of the differencesis as predicted for both type of programs, there isa significant difference between the lower andhigher experience level groups only for generalprograms. The lack of a significant differencebetween the two groups in terms of usage of theprograms targeted at new exporters is most likelyattributable to the very small percentage of SMEowners of any kind who reported using theprograms. The results are shown in Table VII.

6. Implications for marketing export services

The results discussed above are summarized inTable VIII. Collectively, they indicate that theinternational experience of SME owners couldusefully be added to existing segmentation basesfor SME export support programs. That is, publicprograms that currently target firms based on stageof export development could tailor certain portionsof the marketing mix according to the experiencelevel of firms’ owners.

It must be noted that the results here do not, andare not intended to, suggest that current segmen-tation and targeting practices should be aban-doned. Rather, they suggest that these practices

78 Eileen Fischer and A. Rebecca Reuber

TABLE VANOVAs for variables reflecting awareness of

network-related barriers

F Sig.

PARTNER Group 1 mean 2.56 5.105 0.026Group 2 mean 3.29

NETWORK Group 1 mean 2.29 3.949 0.050Group 2 mean 2.94

TABLE VIANOVAs reflecting awareness of export support programs

F Sig.

AWRG Group 1 mean 3.07 6.798 0.011Group 2 mean 3.92

AWRN Group 1 mean 1.19 5.803 0.018Group 2 mean 1.83

TABLE VIIANOVAs reflecting usage of export support programs

F Sig.

USEG Group 1 mean 2.9 8.670 0.006Group 2 mean 1.2

USEN Group 1 mean 1.6 0.564 0.472Group 2 mean 1.0

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can be supplemented by taking into accountthe experience of the owner (and of other topmanagers) as well as the stage of export develop-ment of the firm.

The findings here support and extend those ofGray (1997), who studied export managers innon-owner managed mature firms and who advo-cated segmenting based on the experience of theemployee most directly responsible for exporting.Taken together with theories regarding the firm-level impact of the experience of owners of youngand small firms (cf. Reuber and Fischer, 1999),and with much of the research on the internation-alization of such firms (for a recent review seeCoviello and McCauley, 1999), these findingssupport the idea that in SMEs, where the ownerhas an influence on every aspect of firm behavior,it is practical, and even critical to take the ownerinto account if attempting to categorize the firmwith respect to its potential strengths, weaknessesand needs.

Implications for export support programmanagers

Though the findings of this paper must beregarded as provisional, they do suggest thatsupplementing current segmentation bases byadding an additional basis – owner experience –

may be warranted. In practice, this will mean thatelements of the marketing mix of programstargeted at “new exporters” would be the mostlikely candidates for modification, and thateligibility criteria for a range of programs mightbe re-examined. We discuss the management ofprograms targeted at new exporters first, and thendiscuss eligibility criteria.

There are four generic elements of a marketingmix that can be modified in order to increase suit-ability of an offering for a target market: theproduct/service mix; the communications associ-ated with that product/service; the distribution ofthe product/service; and the pricing of theproduct/service. If providers of export supportprograms targeted at new exporters were to modifytheir practices and take into account the experi-ence levels of owners and managers, it is likelythat some changes would result in three of these:the product/service offerings, the communicationstactics, and the distribution approaches used.

The product service mix could be re-examinedin light of the additional segmentation basissuggested here (owners’ experience) such thatprograms are evaluated as to their relevance forfirms with no track record of exporting versus theirrelevance to managers with no exporting experi-ence. Those programs relevant to experiencedowners are likely to be a subset of the available

Targeting Export Support 79

TABLE VIII Summary of hypotheses and results of hypothesis tests

Hypothesis number Results

1. Compared with owner-managers who have greater levels of international experience, owner- Supportedmanagers with lower levels of international experience will be less likely to view the development of export markets as a competitive route to growth.

2. Compared with owner-managers who have greater levels of international experience, owner- Partially supported managers with lower levels of international experience will pay less attention to valuable sources of business information related to exporting.

3. Compared with owner-managers who have greater levels of international experience, owner- Supported managers with lower levels of international experience will be less aware of network-related barriers that may prevent the development of greater export intensity.

4. Compared with owner-managers who have greater levels of international experience, owner- Supported managers with lower levels of international experience will be aware of fewer available export support services.

5. Among owner-managers aware of export support services, firms led by less internationally Partially supported experienced owner-managers will be more likely to try to use export support services than firms led by more experienced owner-managers.

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programs for firms that have not previouslyexported: in particular, basic training programsmight be better suited to inexperienced individualswho are starting to export than to experiencedindividuals who are leading new firms to startexporting.

Modifications to existing elements of servicedelivery would be appropriate in those situationswhere service providers offer advice to prospec-tive clients as to what programs are likely to beof assistance. Inexperienced individuals shouldlikely be counseled to take advantage of the fullrange of available programs, while experiencedindividuals leading firms that have not previouslyexported could be efficiently directed toward thoseprograms that offer assistance other than training.

Communications strategies could be revised byensuring that all print and electronic descriptionsof programs indicate whether they are likely to berelevant for people without prior experience ormore broadly suited to firms that are newexporters. The titles and descriptions of programsthat are listed on web sites or in brochures couldthus help decisions makers choose to pursueprograms that are well suited not only to theirfirm, given its export profile, but also to theirmanagement team, given its experience profile.

Distribution practices could be broadened if theadditional segmentation basis were taken intoaccount. The operating assumption behind manyexisting programs is that firms must gain adomestic track record before they are likely to beready to consider exporting. However, the pastinternational experience of a new firm’s owner ormanagement team may mean the firm is export-ready at, or soon after, start-up. This wouldsuggest that information about export supportprograms should be distributed to firms as earlyas possible, and that channels that will reach firmsthat are very new should be added to existingchannels.

In addition to re-examining the product-servicemix and the communication and distributiontactics used for programs targeted at newexporters, service providers might also want tore-examine the eligibility criteria for existingprograms. This will apply in cases where firms arerequired to have a domestic track record or whereowners are expected to have taken basic tradetraining courses before they are eligible for certain

programs. It may be warranted to broaden theeligibility criteria for such programs, so that theexperience of the owner or the management teamis taken into account. Providing that firms meetother eligibility criteria (such as having a businessplan and a marketable product) exceptions couldbe made for firms that fail to meet experiencecriteria if owner-managers have export experienceacquired in previous businesses.

Two practical suggestions of a more generalnature can also be made. Organizations seekingto provide export support services that will reachthose who need it and be valued by those who useit, should, when constructing client databases,routinely collect information on owners’ exportexperiences as well as on the firms’ exportactivities. Further, service providers interactingwith SME owners should take account of theowner’s export experience in order to avoid situ-ations where clients get “turned off” becauseservices that are available seem too basic for theirneeds. It is worth noting that none of the practicalimplications recommended here require major newinitiatives on the part of export support serviceproviders. Rather, these suggestions are gearedtoward increasing the effectiveness of and clientsatisfaction with current programs.

7. Conclusions

Before concluding this paper, it is appropriate tonote its limitations. The fact that the sample wasnot drawn randomly from a known population isa clear limitation of the paper. Since no inventoryof the population of relevant firms is available,this limitation is unavoidable. However, it doesmean that the results should be generalized toother Canadian firms with caution. Anotherobvious limitation of the paper is that is basedsolely on Canadian data. As a result, the findingshere should not automatically be assumed togeneralize to other countries.

At a minimum, however, the study is useful forsensitizing export support service providers to thepossibility that their services should be targetedbased on experiential characteristics of individualsas well as on characteristics of firms.

80 Eileen Fischer and A. Rebecca Reuber

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Acknowledgements

The authors gratefully acknowledge the researchassistance of Yavor Stoyanov, Karen Budahazy,Siobhan Lydon, and Franca Young; the financialsupport of the Entrepreneurship Research Allianceand the Social Science & Humanities ResearchCouncil of Canada; the contributions to datacollection of Barabara Orser and Allan Riding;and the research opportunities provided by JoAnnaTownsend of the Department of Foreign Affairsand International Trade.

Notes1 There are numerous different stage based models, withdiffering numbers of stages and different labels for specificstages (Leonidou and Katsikeas, 1996). The differencesbetween such models will not be explored here, nor will theterminology associated with any one model be used exclu-sively, since the basic point is that it is the general notionbehind stage models, rather than any given model, that appearsto inform many current segmentation practices in exportsupport markets.

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